Proposal for a COUNCIL IMPLEMENTING DECISION authorising Hungary to apply a special measure derogating from Article 287 of Directive 2006/112/EC on the common system of value added tax, and repealing Council Implementing Decision (EU) 2018/1490
Date: 2023-04-20
Institutions: Directorate-General for Taxation and Customs Union, European Commission
Subjects: Hungary, VAT, derogation from EU law, small business, tax exemption

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   EUROPEAN COMMISSION  Brussels, 20.4.2023  COM(2023) 203 final 2023/0107 (NLE)  Proposal for a COUNCIL IMPLEMENTING DECISION authorising Hungary to apply a special measure derogating from Article 287 of Directive 2006/112/EC on the common system of value added tax, and repealing Council Implementing Decision (EU) 2018/1490    
 
EXPLANATORY MEMORANDUM 

Pursuant  to  Article  287,  point  (12),  of  Directive  2006/112/EC1  (‘the  VAT  Directive’), 
Hungary may exempt from value added tax (VAT) taxable persons whose annual turnover is 
no higher than the equivalent in national currency of EUR 35 000 at the conversion rate on the 
day of its accession 

Pursuant  to  Council  Implementing  Decision  2022/73  of  18  January  20222,  Hungary  is 
currently  authorised  to  apply  a  special  measure  derogating  from  Article  287  of  the  VAT 
Directive to exempt from VAT taxable persons whose annual turnover is no higher than the 
equivalent  in  national  currency  of  EUR  48  000  at  the  conversion  rate  on  the  day  of  its 
accession to the Union until 31 December 2024.   

By  letter  registered  with  the  Commission  on  15  December  2022,  Hungary  requested  an 
authorisation  to  increase  the  threshold  of  the  above-mentioned  existing  measure  to  EUR  71 
500 until 31 December 2024 (‘the special measure’).  

In accordance with Article 395(2) of the VAT Directive, the Commission informed the other 
Member  States  by  letter  dated  11  January  2023  of  the  request  made  by  Hungary.  By  letter 
dated  12  January  2023,  the  Commission  notified  Hungary  that  it  had  all  the  information  it 
considered necessary for the appraisal of the request. 

1. 

• 

CONTEXT OF THE PROPOSAL 

Reasons for and objectives of the proposal 

Chapter 1 of Title XII of the VAT Directive allows for the possibility for Member States to 
apply  a  special  scheme  for  small  enterprises,  which  includes  the  possibility  to  exempt  from 
VAT  taxable  persons  below  a  certain  annual  turnover.  Taxable  persons  falling  under  this 
exemption  do  not  have  to  charge  VAT  on  their  supplies  and,  consequently,  cannot  deduct 
VAT on their inputs.  

Under Article 287 of the VAT Directive, Member States which acceded after 1 January 1978 
may  exempt  taxable  persons  whose  annual  turnover  is  no  higher  than  the  equivalent  in 
national  currency  of  the  amounts  at  the  conversion  rate  on  the  day  of  their  accession  as 
specified in that provision. 

Under point 12 of Article 287 of the VAT Directive, Hungary may exempt from VAT taxable 
persons whose annual turnover is no higher than the equivalent in national currency of EUR 
35 000 at the conversion rate on the day of its accession (this is referred to as the “personal 
exemption”).  
By  virtue  of  Council  Implementing  Decision  2018/1490/EU3  Hungary  was  authorised,  until 
31 December 2021, to apply a higher threshold, exempting from VAT taxable persons whose 
annual  turnover is  no higher than the equivalent in  national  currency of  EUR 48 000 at  the 

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OJ L 347, 11.12.2006, p. 1. 
Council  Implementing  Decision  (EU)  2022/73  of  18  January  2022  amending  Implementing  Decision 
(EU) 2018/1490 as regards authorisation to Hungary to apply for a further period the special measure 
derogating from Article 287 of Directive 2006/112/EC on the common system of value added tax (OJ L 
12, 19.1.2022, p. 148–150). 
Council Implementing Decision (EU) 2018/1490 of 2 October 2018 authorising Hungary to introduce a 
special measure derogating from Article 287 of Directive 2006/112/EC on the common system of value 
added tax (OJ L 252, 8.10.2018, p. 38-39). 

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conversion rate on the day of its accession. Hungary  was subsequently  authorised to  extend 
the expiry date of the derogating measure until 31 December 2024, by Council Implementing 
Decision 2022/73 of 18 January 20224. 

The higher threshold of EUR 71 500 here requested by Hungary would be consistent with a 
threshold used in  a  Hungarian tax on income tax  (specific tax on small companies: “kata”), 
therefore  simplifying  the  compliance  for  eligible  businesses.  Moreover,  Hungary  states  that 
the exemption threshold should follow the increase in revenue among taxable persons created 
by the economic growth and that a valorization of that threshold would be justified in view of 
the inflationary pressures. 

The  special  measure,  simplifying  the  obligations  of  small  operators,  is  in  line  with  the 
objectives  set  out  by  the  European  Union  for  small  businesses,  as  laid  out  in  Commission 
Communication "Think small first” - A “Small Business Act” for Europe.  

The  special  measure  is  optional  for  taxable  persons.  Therefore,  small  businesses  whose 
turnover does not exceed the threshold would still have the possibility to exercise their right to 
apply the normal VAT arrangements. 

Hungary  reports  that  the  threshold  increase  of  the  special  measure  could  potentially  affect 
around 35 000 taxable persons. Moreover, Hungary states that on the basis of the experience 
of previous  years, it can be assumed that, even if the threshold is  increased, as  requested, a 
significant increase in the proportion of taxable persons actually opting for it, is not expected. 

According to estimates provided by  Hungary, the introduction of the special measure would 
lead to a loss of budgetary revenue  of HUF 15 billion per year (i.e. around 0.05 % of VAT 
accrual (ESA) revenue in 2021) and would therefore not significantly affect the total amount 
of revenue from VAT collected at the stage of final consumption. 

In light of the above, it is appropriate to authorise Hungary to apply the special measure until 
31 December 2024. 

Consistency with existing policy provisions in the policy area 

• 
The  derogating  measure  is  in  line  with  Directive  (EU)  2020/2855  which  resulted  from  the 
Commission’s  VAT  action  plan6,  and  aims  to  create  a  modern,  simplified  scheme  for  those 
businesses.  In  particular,  it  seeks  to  reduce  VAT  compliance  costs  and  distortions  of 
competition  both  domestically  and  at  EU  level,  reduce  the  negative  impact  of  the  threshold 
effect, and facilitate business compliance as well as monitoring by tax administrations. 

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Council  Implementing  Decision  (EU)  2022/73  of  18  January  2022  amending  Implementing  Decision 
(EU) 2018/1490 as regards authorisation to Hungary to apply for a further period the special measure 
derogating from Article 287 of Directive 2006/112/EC on the common system of value added tax (OJ L 
12, 19.1.2022, p. 148–150). 
Council  Directive  (EU)  2020/285  of  18  February  2020  amending  Directive  2006/112/EC  on  the 
common system of value added tax as regards the special scheme for small enterprises and Regulation 
(EU)  No  904/2010  as  regards  the  administrative  cooperation  and  exchange  of  information  for  the 
purpose  of  monitoring  the  correct  application  of  the  special  scheme  for  small  enterprises  (OJ  L  62, 
2.3.2020, p. 13). 
Communication  from  the  Commission  to  the  European  Parliament,  the  Council  and  the  European 
Economic and Social Committee on an action plan on VAT – Towards a single EU VAT area – Time to 
decide COM(2016)148 final. 

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Moreover, the threshold of EUR 71 500 is consistent with Directive (EU) 2020/285, insofar as 
it allows Member States to set the annual turnover threshold required for an exemption from 
VAT at a level no higher than EUR 85 000 (or the equivalent in national currency). 

Similar derogations, exempting from VAT taxable persons whose annual turnover is below a 
certain  threshold,  as  provided for in  Articles  285  and 287  of the VAT  Directive, have been 
granted  to  other  Member  States  such  as  the  Netherlands7  and  Belgium8  who  have  been 
granted a threshold of EUR 25 000. Luxembourg9 as been granted a threshold of EUR 35 000 
and  Poland10,  Latvia11  and  Estonia12  have  been  granted  a  threshold  of  EUR  40  000. 
Lithuania13  has  been  granted  a  threshold  of  EUR  55  000;  Croatia14  a  threshold  of  EUR  45 
000;  Malta15  a  threshold  of  EUR  30  000;  Slovenia16  a  threshold  of  EUR  50  000;  Czech 
Republic17 a threshold of EUR 85 000; and Romania18 a threshold of EUR 88 500. 

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Council  Implementing  Decision  (EU)  2018/1904  of  4  December  2018  authorising  the  Netherlands  to 
introduce  a  special  measure  derogating  from  Article  285  of  Directive  2006/112/EC  on  the  common 
system of value added tax (OJ L 310, 6.12.2018, p. 25). 
Council  Implementing  Decision  (EU)  2022/88  of  18  January  2022  amending  Implementing  Decision 
2013/53/EU  as  regards  authorisation  to  the  Kingdom  of  Belgium  to  apply  for  a  further  period  the 
special measure derogating from Article 285 of Directive 2006/112/EC on the common system of value 
added tax (OJ L 14, 21.1.2022, p. 23). 
Council  Implementing  Decision  (EU)  2019/2210  of  19  December  2019  amending  Implementing 
Decision 2013/677/EU authorising Luxembourg to introduce a special measure derogating from Article 
285  of  Directive  2006/112/EC  on  the  common  system  of  value  added  tax  (OJ  L  332,  23.12.2019,  p. 
155). 
Council Implementing Decision (EU) 2021/1780 of 5 October 2021 amending Implementing Decision 
2009/790/EC  authorising  the  Republic  of  Poland  to  apply  a  measure  derogating  from  Article  287  of 
Directive 2006/112/EC on the common system of value added tax (OJ L 360, 11.10.2021, p. 122). 
Council  Implementing  Decision  (EU)  2020/1261  of  4  September  2020  amending  Implementing 
Decision  (EU)  2017/2408  authorising  the  Republic  of  Latvia  to  apply  a  special  measure  derogating 
from  Article  287  of  Directive  2006/112/EC  on  the  common  system  of  value  added  tax  (OJ  L  296, 
10.9.2020, p. 4). 
Council Implementing Decision (EU) 2021/358 of 22 February 2021 amending Implementing Decision 
(EU) 2017/563 authorising the Republic of Estonia to apply a special measure derogating from Article 
287 of Directive 2006/112/EC on  the  common system of value added tax (OJ L 69, 26.2.2021, p. 4).

Council  Implementing  Decision  (EU)  2021/86  of  22  January  2021  authorising  the  Republic  of 
Lithuania  to  apply  a  special  measure  derogating  from  Article  287  of  Directive  2006/112/EC  on  the 
common system of value added tax (OJ L 30, 28.1.2021, p. 2). 
Council  Implementing  Decision  (EU)  2020/1661  of  3  November  2020  amending  Implementing 
Decision (EU) 2017/1768 authorising the Republic of Croatia to introduce a special measure derogating 
from  Article  287  of  Directive  2006/112/EC  on  the  common  system  of  value  added  tax  (OJ  L  374, 
10.11.2020, p. 4). 
Council  Implementing  Decision  (EU)  2021/753  of  6  May  2021  authorising  Malta  to  apply  a  special 
measure derogating from Article 287 of Directive 2006/112/EC on the common system of value added 
tax, and repealing Implementing Decision (EU) 2018/279 (OJ L 163, 10.5.2021, p. 1). 
Council  Implementing  Decision  (EU)  2022/464  of  21  March  2022  amending  Implementing  Decision 
2013/54/EU  as regards the  authorisation granted to the  Republic of  Slovenia to  continue  to apply the 
special measure derogating from Article 287 of Directive 2006/112/EC on the common system of value 
added tax (OJ L 94, 23.3.2022, p. 4). 
Council  Implementing  Decision  (EU)  2022/865  of  24  May  2022  authorising  the  Czech  Republic  to 
introduce  a  special  measure  derogating  from  Article  287  of  Directive  2006/112/EC  on  the  common 
system of value added tax (OJ L 151, 2.6.2022, p. 66). 
Council  Implementing  Decision  (EU)  2020/1260  of  4  September  2020  amending  Implementing 
Decision (EU) 2017/1855 authorising Romania to apply a special measure derogating from Article 287 
of Directive 2006/112/EC on the common system of value added tax (OJ L 296, 10.9.2020, p. 1). 

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Derogations from the VAT Directive should always be limited in time so that their effects can 
be  assessed.  In  addition,  the  inclusion  of  an  expiry  date  of  the  special  measure  until  31 
December 2024, as requested by Hungary, is aligned with the date set up by Directive (EU) 
2020/285.  That  directive  provides  for  1  January  2025  as  the  date  on  which  Member  States 
will have to apply the national provisions, which they are required to adopt to comply with it. 

The proposed measure is therefore consistent with the provisions of the VAT Directive. 

• 

Consistency with other Union policies 

The  Commission  has  been  consistently  stressing  the  need  for  simpler  rules  for  small 
enterprises.  In  this  respect,  the  Commission  adopted  in  March  2020  an  SME  Strategy  for  a 
sustainable  and  digital  Europe19,  where  it  committed  to  continue  to  work  on  reducing  the 
burden on SMEs. The objective to reduce the regulatory burden for SMEs is one of the pillars 
of that strategy. This special measure is in line with such objectives, as far as fiscal rules are 
concerned.  It  is  also  consistent  with  the  2020  Action  Plan  on  fair  and  simple  taxation 
supporting  the  recovery  strategy20,  which  acknowledges  that  tax  compliance  costs  remain 
high in the EU, and that compliance costs are typically substantially higher for small than for 
large companies. 

2. 

• 

LEGAL BASIS, SUBSIDIARITY AND PROPORTIONALITY 

Legal basis 

Article 395 of the VAT Directive. 

• 

Subsidiarity (for non-exclusive competence)  

Considering the provision of the VAT Directive on which it is based, the proposal falls under 
the exclusive competence of the European Union. Hence, the subsidiarity principle does not 
apply. 

• 

Proportionality 

The Decision concerns an authorisation granted to a Member State upon its own request and 
does not constitute any obligation. 

Given  the  limited  scope  of  the  derogation,  the  special  measure  is  proportionate  to  the  aim 
pursued, i.e. to simplify tax collection for small taxable persons and for the tax administration. 

• 

Choice of the instrument 

The instrument proposed is a Council Implementing Decision. 

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Communication  from  the  Commission  to  the  European  Parliament,  the  Council,  the  European 
Economic  and  Social  Committee  and  the  Committee  of  the  Regions  –  An  SME  Strategy  for  a 
sustainable and digital Europe (COM(2020) 103 final). 
Communication  from the  Commission to the  European Parliament and the  Council  –  An  Action Plan 
for fair and simple taxation supporting the Recovery Strategy (COM(2020) 312 final). 

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Under Article 395 of the VAT Directive, a derogation from the common VAT rules is only 
possible upon authorisation by the Council, which is acting unanimously on a proposal from 
the  Commission.  A  Council  Implementing  Decision  is  the  most  suitable  instrument  since  it 
can be addressed to an individual Member State. 

3. 

• 

RESULTS 
CONSULTATIONS AND IMPACT ASSESSMENTS 

EX-POST 

EVALUATIONS, 

OF 

STAKEHOLDER 

Stakeholder consultations 

No stakeholder consultation has been conducted. The present proposal is based on a request 
made by Hungary and concerns only this particular Member State. 

• 

Impact assessment 

The proposal for a Council Implementing Decision aims at increasing the current exemption 
threshold  to  EUR  71  500.  This  increase  of  the  threshold  is  a  simplification  measure  which 
removes  many  of  the  VAT  obligations  for  businesses  operating  with  an  annual  turnover  no 
higher  than  that  threshold.  It  will  therefore  have  a  positive  impact  on  the  reduction  of 
administrative burden for both businesses and the tax administration without a major impact 
on  the  total  VAT  revenue.  Because  of  the  narrow  scope  of  the  derogation  and  its  limited 
application in time, the impact of the measure will in any case be limited. 

Currently, based on data available from 2021, the increase in proposed threshold would lead 
to a decrease in VAT revenue of approximately 0.05 %. 

The derogating measure will be optional for taxable persons. Taxable persons will be able to 
opt  for  the  regular  VAT  arrangements  in  accordance  with  Article  290  of  Directive 
2006/112/EC. 

• 

Fundamental rights 

The proposal does not have any consequences for the protection of fundamental rights. 

4. 

BUDGETARY IMPLICATIONS 

Following entry into force of Council Regulation (EU, Euratom) 2021/769 of 30 April 2021 
amending Regulation (EEC, Euratom) No 1553/89 on the definitive uniform arrangements for 
the  collection  of  own  resources  accruing  from  value  added  tax21,  there  will  be  no 
compensation calculation carried out by Hungary as of VAT own resource statement for the 
financial year 2021 onwards. 

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Council  Regulation (EU, Euratom) 2021/769 of 30 April  2021 amending Regulation (EEC, Euratom) 
No 1553/89 on the definitive uniform arrangements for the collection of own resources accruing from 
value added tax (OJ L 165, 11.5.2021, p. 9).  

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2023/0107 (NLE) 

Proposal for a 

COUNCIL IMPLEMENTING DECISION 

authorising Hungary to apply a special measure derogating from Article 287 of 
Directive 2006/112/EC on the common system of value added tax, and repealing Council 
Implementing Decision (EU) 2018/1490  

THE COUNCIL OF THE EUROPEAN UNION, 

Having regard to the Treaty on the Functioning of the European Union,  

Having  regard  to  Council  Directive  2006/112/EC  of  28  November  2006  on  the  common 
system of value added tax1, and in particular Article 395(1), first subparagraph, thereof, 

Having regard to the proposal from the European Commission, 

Whereas: 

(1) 

(2) 

(3) 

(4) 

Pursuant to Article 287, point (12), of Directive 2006/112/EC, Hungary may exempt 
from value added tax (VAT) taxable persons whose annual turnover is no higher than 
the equivalent in national currency of EUR 35 000 at the conversion rate on the day of 
its accession. 
By Council Implementing Decision 2022/732, Hungary was authorised to continue to 
apply  a  special  measure  derogating  from  Article  287  of  Directive  2006/112/EC  to 
exempt  from  VAT  taxable  persons  whose  annual  turnover  is  no  higher  than  the 
equivalent in national currency of EUR 48 000 at the conversion rate on the day of its 
accession to the Union until 31 December 2024.  

By  letter  registered  with  the  Commission  on  15 December  2022,  Hungary  requested 
an  authorisation  to  increase  the  threshold  of  the  above  mentioned  existing  special 
measure to EUR 71 500 until 31 December 2024 (‘the special measure’).  

By  letter  dated  11  January  2023,  the  Commission  transmitted  the  request  made  by 
Hungary  to  the  other  Member  States  in  accordance  with  Article  395(2),  second 
subparagraph,  of  Directive  2006/112/EC.  By  letter  dated  12  January  2023,  the 
Commission  notified  Hungary  that  it  had  all  the  information  it  considered  necessary 
for the appraisal of the request. 

(5) 

The special measure requested by Hungary is in line with the amendments to Directive 
2006/112/EC  made by  Council  Directive (EU) 2020/2853, which seeks to  reduce  the 

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OJ L 347, 11.12.2006, p. 1. 
Council  Implementing  Decision  (EU)  2022/73  of  18  January  2022  amending  Implementing  Decision 
(EU) 2018/1490 as regards authorisation to Hungary to apply for a further period the special measure 
derogating from Article 287 of Directive 2006/112/EC on the common system of value added tax (OJ L 
12, 19.1.2022, p. 148). 
Council  Directive  (EU)  2020/285  of  18  February  2020  amending  Directive  2006/112/EC  on  the 
common system of value added tax as regards the special scheme for small enterprises and Regulation 
(EU)  No  904/2010  as  regards  the  administrative  cooperation  and  exchange  of  information  for  the 

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(6) 

(7) 

(8) 

(9) 

VAT compliance costs for small enterprises and mitigate distortions of competition in 
the internal market. 

The special measure will remain optional for taxable persons as they may still opt for 
the  regular  VAT  arrangements  in  accordance  with  Article  290  of  Directive 
2006/112/EC.  

According  to  the  information  provided  by  Hungary,  the  special  measure  will  have  a 
negligible  effect  on  the  overall  amount  of  tax  revenue  of  Hungary  collected  at  the 
stage of final consumption.   
Following the entry into force of Council Regulation (EU, Euratom) 2021/7694, there 
is to be no compensation calculation carried out by Hungary with regard to the VAT-
based own resource statement for the financial year 2021 onwards. 

Given  the  positive  impact  of  the  special  measure  in  reducing  the  VAT  compliance 
burden  of  both  small  enterprises  and  the  tax  authorities  and  given  the  negligible 
impact on the total VAT revenue generated, Hungary should be authorised to apply the 
special measure.  

(10)  The  authorisation  to  apply  the  special  measure  should  be  limited  in  time.  The  time 
limit  should  be  sufficient  to  allow  the  Commission  to  evaluate  the  effectiveness  and 
appropriateness of the threshold. Moreover, pursuant to Article 3(1) of Directive (EU) 
2020/285,  Member States are to  adopt  and publish, by 31 December 2024, the laws, 
regulations  and  administrative  provisions  necessary  to  comply  with  Article  1(12)  of 
that  Directive  and  are  to  apply  those  provisions  from  1  January  2025.  It  is  therefore 
appropriate  to  authorise  Hungary  to  apply  the  special  measure  until  31  December 
2024.  

(11) 

Implementing Decision (EU) 2018/1490 should therefore be repealed. 

HAS ADOPTED THIS DECISION:  

Article 1 

By  way  of  derogation  from  Article  287,  point  (12),  of  Directive  2006/112/EC,  Hungary  is 
authorised  to  exempt  from  VAT  taxable  persons  whose  annual  turnover  is  no  higher  than 
EUR 71 500 at the conversion rate on the day of its accession. 

Implementing Decision (EU) 2018/1490 is repealed. 

Article 2 

This Decision shall take effect on the date of its notification.  

It shall apply until 31 December 2024. 

Article 3 

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purpose  of  monitoring  the  correct  application  of  the  special  scheme  for  small  enterprises  (OJ  L  62, 
2.3.2020, p. 13). 
Council  Regulation (EU, Euratom) 2021/769 of 30 April  2021 amending Regulation (EEC, Euratom) 
No 1553/89 on the definitive uniform arrangements for the collection of own resources accruing from 
value added tax (OJ L 165, 11.5.2021, p. 9). 

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This Decision is addressed to Hungary. 

Article 4 

Done at Brussels, 

For the Council 
The President 

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